Aug 27, 2011 (LBO) - Investors are losing interest in Sri Lanka's plantations as rising wages without productivity gains are making companies reluctant to invest in the replanting needed to sustain the industry, a business group has warned.
Sri Lanka’s competitiveness as a tea producer has declined with each successive wage hike with no commensurate increase in labour productivity, Elpitiya Plantations chairman Rajan Brito said.
The firm, part of the Aitken Spence group, made a net profit of 364 million rupees in the financial year to March 31, 2011, up 470 percent from the previous year, as gains from rubber, palm oil and hydropower compensated for a weak performance from tea.
"The future for Elpitiya Plantations is very challenging," Brito told shareholders in the company's annual report.
"On one side, with the government’s thrust and priority towards plantations and agriculture, the estates show great promise for diversification into other crops and industries.
"On the other hand, the industry is faced with twin problems of rising cost and lower productivity particularly for high and mid grown tea.
Brito said Sri Lanka’s competitiveness as a tea producer has declined with each successive wage increase.
Managing director Rohan Fernando said that the tea industry, the country’s backbone and the main business of Elpitiya Plantations, continues to lag behind and was "barely able to make a profit during the year."
The high and medium grown estates in particular were affected by inconsistent weather and fluctuating tea prices, which contributed to negative margins on the estates.
"This is a serious area of concern and has been aggravated by the recent wage increase," Fernando said.
"Once in two years plantation sector wages are increased in keeping with the collective agreement and whilst we appreciate the need for increased wages and benefits to employees, it is important that the increases are compensated with an increase in productivity.
"When this does not happen, the industry gradually erodes to a position when investors and stakeholders begin to lose confidence on this industry," Fernando warned.
"Unfortunately this is the current position of the tea industry, which is clearly seen by the rate of replanting in all the high and medium grown estates in Sri Lanka."
Fernando warned that unless this situation is corrected, "no investor will be willing to risk capital in the cultivation and replanting of tea particularly in the high and medium grown estates."
source - www.lbo.lk
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